Vecron Exim Ltd. v. Clinton Lee Stokes, III

Filing 99

MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: PLAINTIFFS MOTION FOR REVIEW OF NONDISPOSITIVE RULING 92 IS DENIED WITHOUT PREJUDICE AND PLAINTIFFS MOTION FOR SANCTIONS 95 IS DENIED WITHOUT PREJUDICE. (lc). Modified on 11/20/2018 .(lc).

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:17-cv-02944-CAS(RAOx)

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

Present: The Honorable

Date

‘O’
November 20, 2018

CHRISTINA A. SNYDER

Catherine Jeang

Laura Elias

N/A

Deputy Clerk

Court Reporter / Recorder

Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

William Sinclair

Scott Meehan
Kahlil McAlpin (former)

Proceedings:

PLAINTIFF’S MOTION FOR REVIEW OF NONDISPOSITIVE
RULING (Dkt. 92, filed on September 21, 2018)
PLAINTIFF’S MOTION FOR SANCTIONS (Dkt. 95, filed on
October 2, 2018)

I.

INTRODUCTION

On April 19, 2017, plaintiff Vecron Exim Ltd. (“Vecron”) filed this action against
defendant Clinton Lee Stokes, III (“Stokes”), asserting a single claim for breach of
contract. Dkt. 1. Plaintiff alleges that the parties, along with non-party PPB Engineering
and System Design, Inc. (“PPB”), entered into a valid and binding Agreement, which
Stokes breached by failing to comply with several payment obligations. Id.
On September 21, 2018, plaintiff filed the instant motion for review of a
nondispositive ruling. Dkt. 92 (“Mot.”). On September 28, 2018, defendant filed an
opposition. Dkt. 94 (“Opp’n.”). On October 2, 2018, plaintiff also filed a motion for
sanctions against defendant’s former counsel, Kahil J. McAlpin (“McAlpin”). Dkt. 95
(“Sanc. Mot.”). McAlpin filed an opposition on November 4, 2018. Dkt. 98 (“Sanc.
Opp’n”).
The Court held a hearing on November 19, 2018. Having carefully considered the
parties’ arguments, the Court finds and concludes as follows.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

2:17-cv-02944-CAS(RAOx)

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

II.

Date

‘O’
November 20, 2018

BACKGROUND
a.

Case History

Following plaintiff’s filing of its breach of contract complaint, on May 26, 2017,
defendant, appearing pro se, filed a motion to dismiss for improper venue and failure to
join PPB as an indispensable party. Dkt. 9. On June 27, 2017, the Court denied the
motion—finding that (1) venue is proper in this judicial district under 28 U.S.C. §
1391(b)(1); and (2) defendant failed to demonstrate that PPB is a necessary party. Dkt.
13. On August 14, 2017, the Court denied defendant’s subsequent request to transfer
venue to the District of Nevada on the grounds that the forum-selection clause in the
Agreement is permissive and the remaining factors under 28 U.S.C. § 1404(a) weigh
against transferring the action. Dkt. 19. On August 28, 2017, McAlpin appeared on
behalf of defendant and filed an answer. Dkt. 20. In that answer, defendant admitted to
“enter[ing] into a Memorandum of Understanding, which is a valid and binding contract
among Vecron and Debtors.” Dkt. 20 (“Answ.”) at 2 (referencing Compl. ¶ 6).
However, defendant denied that he failed to perform the obligations required of him by
Memorandum of Understanding (“MOU”), as alleged by plaintiff. Answ. at 2
(referencing Compl. ¶¶ 7–11, 13–16).
On November 17, 2017, the Court held a scheduling conference. Dkt. 26. After
defendant failed to respond to initial discovery requests, plaintiff filed a motion to compel
on February 22, 2018, which defendant failed to oppose. Dkt. 29. The parties
participated in a mediation on March 1, 2018, but were unable to reach a settlement
agreement. Dkt. 36. On March 16, 2018, Magistrate Judge Rozella A. Oliver (“the
Magistrate Judge”) granted the motion to compel, ordering defendant to provide
responses and any responsive documents with fourteen days. Dkt. 40. Defendant failed
to comply with this discovery order.
On April 6, 2018, plaintiff moved for summary judgment. Dkt. 42. No opposition
was filed. However, on May 4, 2018, defendant filed an ex parte application for an order
continuing all dates, including the motion cut-off date. Dkt. 51 (“Appl.”). Defendant
alleged that he had just discovered his prior counsel, McAlpin, failed to properly defend
him in this action, and that defendant had had retained new counsel, Scott A. Meehan
(“Meehan”). Appl. At 2. Following a May 7, 2018 hearing and for good cause shown,
the Court (1) granted defendant’s ex parte application, (2) modified the scheduling order
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CENTRAL DISTRICT OF CALIFORNIA
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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

accordingly, and (3) denied plaintiff’s motion for summary judgment as moot. Dkt. 54.
On May 18, 2018, the Court subsequently granted defendant leave to amend its answer.
Dkt. 60 (“FAA”). In that answer, defendant denied entering into the MOU with plaintiff.
FAA ¶ 6. In a declaration attached to his motion to continue all dates, defendant stated
that
I am informed that Mr. McAlpin filed an Answer on my behalf that admits that I
entered into such contract. Mr. McAlpin never consulted with me about the facts
of this case prior to filing the Answer. After I received a copy of the Answer he
filed, I confronted him of the mistake in the Answer, I asked him how and when to
let the other side know that I never signed the contract, he replied “at trial.”
Because he was my lawyer, I believed him.
Appl., Stokes Decl. ¶ 4. Defendant further declared that despite his efforts, there was a
“lack of communication” between himself and McAlpin, and that McAlpin never
informed defendant of plaintiff’s discovery requests. Id. ¶¶ 5–10.
b.

The Instant Discovery Dispute

On July 31, 2018, plaintiff took the deposition of defendant. Plaintiff’s instant
motion for review concerns the Magistrate Judge’s ruling that defendant lawfully
declined to answer ten questions during that deposition. Mot. at 2. Specifically, during
the deposition, defense counsel Meehan instructed defendant to decline to answer ten
questions, on the basis of attorney-client privilege. Id. The ten questions were:
1.

Did [Mr. McAlpin] tell you if he was speaking with anybody else [regarding
the March 1, 2018 mediation]?

2.

Have you ever authorized Mr. McAlpin to settle a matter on your behalf?

3.

What was [Mr. McAlpin’s] response [when you speculated that Michael
Stokes signed the contract]?

4.

Did Mr. McAlpin, on September 11 or anytime thereafter, let you know
about this email from Mr. Leitess [regarding Wesley Poff absconding with
the equipment]?

5.

Did Mr. McAlpin tell you about this email [from Mr. Leitess]?

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

6.

Did you discuss [settlement] terms with Mr. McAlpin?

7.

Did Mr. McAlpin ask you to obtain and provide the address [of where the
equipment is located]?

8.

Did you authorize Mr. McAlpin to make that [settlement] offer?

9.

[D]id you authorize Mr. McAlpin to extend those [settlement] terms to
Vecron?

10.

What was your response when [Mr. McAlpin] told you [about settlement
terms from May 1, 2018]?

Id. at 2. Plaintiff’s counsel certified the questions at the deposition. Id. at 3.
On August 20, 2018, the parties moved for an informal discovery conference with
the Magistrate Judge to determine whether the questions sought to discover privileged
attorney-client communications. Dkt. 88. The Magistrate Judge granted the motion and
ordered the parties to submit letter briefing on the matter. Dkt. 89.
On September 4, 2018, after reviewing the parties’ letter briefings and after
holding a telephonic hearing, the Magistrate Judge determined that defendant was
justified in declining to answer the ten questions at issue. Dkt. 91 (“Order”). The
Magistrate Judge explained that the questions “concern three categories of
communications” between defendant and defendant’s former attorney: “(1) settlement
discussions; (2) discussions regarding the location of certain equipment at issue in the
instant litigation; and (3) the signer of a contract that is the basis [of] Plaintiff’s breach of
contract complaint.” Id. at 1. Plaintiff argued that its questions sought to elicit facts
underlying a communication relevant to the litigation, and that it did not seek to disclose
any protected communications of legal advice. Mot., Ex. A at 2 – 4. However, the
Magistrate Judge concluded that plaintiff’s argument was “an attempt to circumvent the
protections provided” by the privilege and found that plaintiff’s questions sought answers
about communications between an attorney and his client about a pending litigation,
which were properly protected by the attorney-client privilege. Order at 1 – 2.
Specifically regarding plaintiff’s third question—which asked “What was [Mr.
McAlpin’s] response [when you speculated that Michael Stokes signed the contract]?”—
the Magistrate Judge concluded that defendant waived the attorney-client privilege
because the defendant answered other questions on the topic. Order at 2. However, the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

Magistrate Judge sustained defendant’s objection to the question because she found the
question irrelevant to this breach of contract action. Id.
Plaintiff filed for review of the nondispositive ruling on September 21, 2018. Mot.
at 1.
III.

MOTION FOR REVIEW OF NONDISPOSITIVE RULING
A.

Legal Standard

Pursuant to Federal Rule of Civil Procedure 72(a), a party may file objections to a
magistrate judge’s non-dispositive order within fourteen days. The party shall file a
motion for review by the assigned district judge “designating the specific portions of the
ruling objected to and stating the grounds for the objection.” Local Rule 72–2.1. Under
this rule, the district judge will not modify or set aside a magistrate judge’s ruling unless
the objecting party shows that the ruling was “clearly erroneous or contrary to law.” 28
U.S.C. § 626(b)(1)(A). “The ‘clearly erroneous’ standard applies to the magistrate
judge’s factual determinations and discretionary decisions, including orders imposing
discovery sanctions.” Computer Econ., Inc. v. Gartner Grp., Inc., 50 F. Supp. 2d 980,
983 (S.D. Cal. 1999). “A finding is ‘clearly erroneous’ when although there is evidence
to support it, the reviewing [body] on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” Concrete Pipe & Prods. Of California,
Inc. v. Constr. Laborers Pension Tr. for S. California, 508 U.S. 602, 623 (1993). The
“contrary to law” standard allows “independent, plenary review of purely legal
determinations” by the magistrate judge. Jadwin v. Cty. of Kern, No. CV-F-07-026
OWW/TAG, 2008 WL 4217742, at *1 (E.D. Cal. Sept. 11, 2008). An order is “contrary
to law when it fails to apply or misapplies relevant statutes, case law, or rules of
procedure.” Id.
The attorney-client privilege “rests on the need for the advocate and counselor to
know all that relates to the client's reasons for seeking representation if the professional
mission is to be carried out.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981)
(quoting Trammel v. United States, 445 U.S. 40, 51, 100 S.Ct. 906, 913, 63 L.Ed.2d 186
(1980)). “Wigmore on Evidence describes the several elements of the privilege this way:
(1) When legal advice of any kind is sought (2) from a professional legal adviser in his or
her capacity as such, (3) the communications relating to that purpose, (4) made in
confidence (5) by the client, (6) are, at the client's instance, permanently protected (7)
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

from disclosure by the client or by the legal adviser (8) unless the protection be waived.”
United States v. Martin, 278 F.3d 988, 999 (9th Cir. 2002), as amended on denial of reh'g
(Mar. 13, 2002) (citing 8 J. Wigmore, Evidence § 2292, at 554 (McNaughton rev. 1961)).
“The privilege only protects disclosure of communications; it does not protect disclosure
of the underlying facts by those who communicated with the attorney . . . . The client
cannot be compelled to answer the question, ‘What did you say or write to the attorney?’
but may not refuse to disclose any relevant fact within his knowledge merely because he
incorporated a statement of such fact into his communication to his attorney.” Upjohn
Co., 449 U.S. at 395–96 (internal citations omitted).
The party asserting the privilege must identify the grounds for each communication
it seeks to protect. Clarke v. Am. Commerce Nat. Bank, 974 F.2d 127, 129 (9th Cir.
1992). The Ninth Circuit has “recognized that the identity of the client, the amount of the
fee, the identification of payment by case file name, and the general purpose of the work
performed are usually not protected from disclosure by the attorney-client privilege.” Id.
“However, correspondence, bills, ledgers, statements, and time records which also reveal
the motive of the client in seeking representation, litigation strategy, or the specific nature
of the services provided, such as researching particular areas of law, fall within the
privilege.” Id.
B.

Discussion

The Court concludes that the magistrate judge’s order was not clearly erroneous or
contrary to law. As presented on the record to the Magistrate Judge, the answers to each
of the ten questions could invade the attorney-client privilege, revealing information
about legal advice or litigation strategy. Similarly, there is nothing clearly erroneous or
contrary to law about the Magistrate Judge’s ruling that Question 3 – asking “What was
[Mr. McAlpin’s] response [when you speculated that Michael Stokes signed the
contract]?”—was irrelevant as presented on the record. McAplin’s reaction to
defendant’s speculation that defendant’s brother signed the MOU has no bearing on a
breach of contract claim, which is the sole claim alleged in plaintiff’s complaint.
Plaintiff represents that it asked these questions not to elicit privileged
communications, but to discover underlying facts related to the breach of contract matter.
The Court acknowledges and recognizes that certain information that plaintiff may seek
could fall outside the privilege. For example, Question 2— which asks whether
defendant “ever authorized Mr. McAlpin to settle a matter on your behalf?”— could
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

‘O’

Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

produce an objective, yes-or-no answer that does not disclose communications about
legal advice or litigation strategy. As the question stands, however, it is very broad in
that it does not clarify the timeframe, and the question could also reasonably produce
disclosures about the circumstances in which defendant would or would not wish to
settle. Such information could be protected by the attorney-client privilege. Similarly,
with Question 7—which asks “Did Mr. McAlpin ask you to obtain and provide the
address [of where the equipment is located]?”—the specific address where the equipment
is located is not privileged because the address is an underlying fact. However, the
circumstances surrounding McAlpin asking defendant questions about the address, which
could relate to a litigation strategy, could be protected.
With regard to Question 3— “What was [Mr. McAlpin’s] response [when you
speculated that Michael Stokes signed the contract]?” – plaintiff also argues that
defendant’s objection should not be sustained because (1) defendant cannot state a
relevancy objection because it was not raised at the deposition, and because (2) a
relevancy objection cannot be the basis for instructing a deponent not to answer a
deposition question. Mot. at 7. The Court finds, however, that defense counsel objected
to the question on the grounds of attorney-client privilege, as permitted by Rule 30(c)(2).
Mot., Ex. A at 112; Fed. R. Civ. P. 30 (“A person may instruct a deponent not to answer
only when necessary to preserve a privilege, to enforce a limitation ordered by the court,
or to present a motion under Rule 30(d)(3).”). The Magistrate Judge later found the
question to be irrelevant, based on the record before her. Order at 2. At oral argument,
counsel for plaintiff argued that the Magistrate Judge could not deny plaintiff’s motion to
compel discovery on the basis of relevancy. However, Rule 26 states that, “Unless
otherwise limited by court order, the scope of discovery is as follows: Parties may obtain
discovery regarding any nonprivileged matter that is relevant to any party's claim or
defense and proportional to the needs of the case . . . .” Fed. R. Civ. P. 26 (emphasis
added). The Magistrate Judge found that Question 3 was of “dubious relevance” to the
instant breach of contract action, and she expressed concern that “[p]laintiff’s counsel is
attempting to pursue discovery unrelated to its lawsuit.” Order at 2. She further stated
that “[p]laintiff’s counsel declined to answer directly” when she inquired into the
relevancy. Id. Given the record before her, and the appropriate scope of discovery, as
dictated by Rule 26, the Court finds nothing clearly erroneous nor contrary to law in her
ruling.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

Accordingly, to the extent that plaintiff seeks to pursue discovery on these topics,
plaintiff should bring a new motion that clearly identifies the significance of its questions,
and the specific factual information plaintiff seeks to elicit. Plaintiff should include
related follow-up questions that help direct the line of inquiry to non-privileged matters.
This will create a fuller record from which the Magistrate Judge can rule.
Additionally, plaintiff repeatedly references the possibility of fraud. Mot. at 8;
Mot., Ex. A at 1 (suggesting that the underlying contract may be “the product of a
byzantine fraud” and that defendant is “attempting to hide behind baseless claims of
attorney-client privilege to further obstruct Plaintiff” from investigating). However, the
Court is unclear if plaintiff argues that the crime-fraud exception to the attorney-client
privilege applies in this case. If plaintiff so argues, plaintiff should clearly state its
position.
IV.

MOTION FOR SANCTIONS
A.

Legal Standard

28 U.S.C. § 1927 provides that any “attorney . . . who so multiplies the
proceedings in any case unreasonably and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred
because of such conduct.” 28 U.S.C. § 1927 (West). The statute “applies only to
unnecessary filings and tactics once a lawsuit has begun.” In re Keegan Mgmt. Co., Secs.
Litig., 78 F.3d 431, 435 (9th Cir. 1996).
Before § 1927 sanctions can be imposed, the court must make a finding of
subjective bad faith, not simply objectively unreasonable behavior. Salstrom v. Citicorp
Credit Services, Inc., 74 F.3d 183, 184 (9th Cir. 1996). “Bad faith is present when an
attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious
claim for the purpose of harassing an opponent.” In re Keegan Mgmt. Co., 78 F.3d at
436 (quoting Estate of Blas v. Winkler, 792 F.2d 858, 860 (9th Cir.1986)). Put
differently, “[f]or sanctions to apply, if a filing is submitted recklessly, it must be
frivolous, while if it is not frivolous, it must be intended to harass.” Id. at 436.
The decision to sanction a party under § 1927 rests in the sound discretion of the
district court. See, e.g., Trulis v. Barton, 107 F.3d 685, 694 (9th Cir.1996) (finding that
the district court abused its discretion by not awarding § 1927 sanctions); MGIC
Indemnity Corp. v. Moore, 952 F.2d 1120, 1121 (9th Cir. 1991) (holding that the district
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

court abused its discretion by awarding § 1927 sanctions). As with sanctions awarded
pursuant to the court's inherent powers, § 1927 sanctions must be tailored to the particular
conduct challenged. See, e.g., United States v. Blodgett, 709 F.2d 608, 610–11 (9th Cir.
1983) (“Section 1927 only authorizes the taxing of excess costs arising from an attorney's
unreasonable and vexatious conduct; it does not authorize imposition of sanctions in
excess of costs reasonably incurred because of such conduct.”).
B.

Discussion

Plaintiff moves for sanctions against McAlpin pursuant to § 1927. Plaintiff alleges
that McAlpin knowingly concealed that defendant allegedly did not sign the MOU
between plaintiff and defendant, and in so doing, McAlpin “essentially caused an entire
year of litigation to be for naught.” Sanc. Mot. at 2. Plaintiff also claims that McAlpin
“compounded the problem” by failing to engage in discovery procedures, and by
misrepresenting defendant’s involvement in the mediation held on March 1, 2018. Id.
at 5. “Upon information and belief,” plaintiff alleges that, McAlpin acted in this way “to
further a fraud whereby Defendant’s half-brother, Michael Stokes, impersonated
Defendant to confuse and stymie Plaintiff’s efforts to collect.” Id. at 2. Given McAlpin’s
alleged conduct, plaintiff requests that the Court “permit [plaintiff] to depose Mr.
McAlpin and obtain from Mr. McAlpin all non-privileged documents and
communications related hereto, award [plaintiff] its attorneys’ fees incurred in bringing
this Motion, and grant such relief as is appropriate and just under the circumstances after
Plaintiff has the opportunity to supplement this motion after the deposition has been
taken and the documents have been produced.” Id. at 7.
McAlpin opposes plaintiff’s motion on the grounds that it “lacks merit, is
premature and is yet another attempt to seek attorney/client privileged and confidential
settlement communications.” Sanc. Opp’n at 1. McAlpin argues that plaintiff
improperly “attempts to have a small portion of the deposition testimony of Clinton
Stokes . . . be deemed as a ‘finding-of-facts’ ruling,” and that McAlpin cannot present an
alternative explanation for his alleged misconduct because it would violate the attorneyclient privilege. Id. at 1–2. “For example, hypothetically, if Clinton Stokes told Attorney
McAlpin that he did, in fact, sign the contract, then how would it be possible for Attorney
McAlpin to defend against the Motion without violating that protected attorney client
privilege communication?” Id. McAlpin adds that he possesses evidence of his
conversations with defendant, but that the documents, texts, etc. are also privileged. Id.
at 4.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Date

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Case No.

2:17-cv-02944-CAS(RAOx)

November 20, 2018

Title

VECRON EXIM LTD. V. CLINTON LEE STOKES, III

The Court declines to rule on plaintiff’s § 1927 motion at this time, and
accordingly denies plaintiff’s motion without prejudice. The Court finds that this motion
is better reached at the conclusion of the case, when the record is more fully developed.
See Salstrom, 74 F.3d at 185 (upholding a sanctions award postjudgment, as opposed to
immediately following the misconduct, because “in some situations, liability under
proper sanctioning authority will not be immediately apparent or may not be precisely
and accurately discernible until a later time”). The Court notes, however, that the sole
remedy available under § 1927 is the litigation costs resulting from an attorney’s
misconduct. See Blodgett, 709 F2d at 610. The statute is not a vehicle to request
discovery. However, because the Court finds that this sanctions request is better decided
on a more fully developed record, should the Court determine that depositions are
necessary, it will order them, in the exercise of the Court’s equitable power. Plaintiff can
also request depositions, pursuant to the federal rules governing discovery. Fed. R. Civ.
Pro. 27.
V.

CONCLUSION

For the foregoing reasons, plaintiff’s motion for review of a nondispositive ruling
is DENIED without prejudice. Plaintiff’s motion for sanctions is also DENIED without
prejudice.
IT IS SO ORDERED.
00
Initials of Preparer

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CMJ

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